The government stands to forego revenue worth Nu 14bn due to GST implications: more specifically, Nu 12bn worth excise duty refund and Nu 2bn in Green Tax and Sales Tax.
This is huge money. It was estimated that by 2015 end alone, hydropower projects in the country would generate revenue worth Nu 14bn and the net revenue would be Nu 10bn.
What was surprising, however, was that the finance minister in an informal chat session with journalists on Wednesday at the Journalists Association of Bhutan explicitly said that losing Nu 14bn was not something to worry about.
One could sense a lame explanation when he said that the Nu 14bn would be spread out over five years in the 12th Five Year Plan, which translates to about Nu 3bn every year and the amount was negligible.
He also argued that the government would explore “revenue generating schemes” but he could not explain what these schemes were in concrete terms.
Back in 2015, Nu 3.2bn was supposed to be the amount for servicing loans from hydropower projects. It was projected to reduce to Nu 2.8bn in 2016. Considering this and hypothetically, if the net hydropower revenue of Nu 10bn was used to finance a five year plan, it would mean less than Nu 3bn for every fiscal year, which is why the finance minister’s argument that losing revenue this scale is not cause to worry is in itself worrisome.
Also, asked if the government meant to increase taxes to compensate for the revenue deficit, Lyonpo replied in the negative. He also said that development activities would not be affected.
It is not magic we are talking here. The government cannot simply forego revenue this magnitude and expect that it would be miraculously nullified without backup plans. It also cannot be affirmed whether development activities will be affected or not without having strong funding alternatives.
Further, the situation is telling of the government’s unpreparedness in the face of an economic predicament as the former government was during the Rupee crisis back in 2010-11. Additionally, the government is now going to face many other implications post-GST.
Industries in Pasakha will be hit but the government is saying that it has already assessed the situation and in the finance minister’s words, “there is nothing much the government can do” about alleviating the industries’ situation.
The private sector has made six submissions to the government including IGST being imposed at point of sale instead of point of entry. This is supposed to buy time to rationalize taxes before paying them.
However, the fact that remains unchanged is that the government should have seen GST coming, and have been prepared.
Right now, though, GST has both negative and positive implications: the chief impact being that over a span of the next five years, the government is going to lose substantial revenue.
Now, our policy and decision makers should be thinking of how to overcome this revenue deficit and come up with implementable, practical and solid action plans.
Government unpreparedness is also seen in the way the central bank issued the vehicle loan directive and the government raised taxes on importing vehicles though if we think long-term the rationale of controlling rupee outflow, curbing vehicle imports and maybe improving public transport justifies the move.
This however does not obliterate the need of the common Bhutanese to own a car when it has become almost a necessity in the face of poor and extremely inefficient public transport system.
Lyonpo’s vague answers to the question of government seeking alternative solutions to curtailing vehicle imports were also not at all convincing.
While laying the blame solely on the government may not be right, this does not take away from the fact that it should have been prepared for this major tax reform move from the Indian government since India is its closest, next-door ally.
Otherwise the government could at least have braced up after GST came into effect from July 1. More than a month has passed since GST imposition in India setting off ripple effects in Bhutan and the authorities still seem to be groveling in confusion and trepidation.
This more than not points to major inefficiency on the government’s part and it should immediately set about formulating measures to cushion GST impact.
We understand that it is easier said than done.
Things like this take time but the situation is a test of the government’s sense of responsibility, preparedness level and ability to tide through a crisis. Unpreparedness can prove costly and for that we cannot make do with excuses alone